February 10, 2014

Obama's Partly to Blame for the Postal Service's Backward Ways

A recent recommendation by the U.S. Postal Service inspector general that the agency offer basic banking services to customers has generatedlots of discussion. Senator Elizabeth Warren endorsed the idea as a way to aid the post office’s search for new revenue and provide needed access to financial services to millions of low-income Americans. And the fact that bank lobbyists have been freaking out at the prospect shows they recognize the potential for this to catch on.

In fact, seemingly everyone is taking it seriously except for the leadership of the Postal Service. The inspector general argued in his report that the USPS, because of its current role providing money orders and other non-bank financial services, “could explore additional options within its existing authority,” without approval from Congress. That means that the postmaster general since 2010, Patrick Donahoe, and his leadership team could conduct pilot programs and gradually roll out new services nationwide. Yet agency officials have only said they are reviewing the recommendations.

Donahoe sees his mission as digging the Postal Service, with its large annual losses and maxed-out borrowing authority, out of a giant financial hole. In actuality, much of the Postal Service’s financial troubles stem from a 2006 law requiring it to pre-fund its retirement benefits 75 years out, something imposed on no other public agency or private business. That fund currently has $47 billion in it, enough to pay all benefits for current workers. Yet the law still demands additional payments of $5.5 billion per year, and when the Postal Service misses these payments (as they have three times since 2011), it creates massive losses on the balance sheet.1 If the requirement were suspended for the fourth quarter of 2013, the Postal Service would have turned a $1 billion profit; instead they lost $354 million.

Rather than focusing on the retirement issue as the main source of the Postal Service’s immediate problems, Donahoe has stressed a long-term prescription of innovation. While reductions in mail volume in a digital age certainly demands a response, Donahoe's "innovation" has involved closing post office branches, reducing hours, and cutting over 125,000 jobs, the sharpest drop in USPS history, with nearly 100,000 more slated by 2015. He also tried to end Saturday delivery before Congress rejected that maneuver. He has even partially privatized postal services through a partnership with Staples that has angered postal worker unions, who say non-union Staples employees shouldn't be selling postal products like stamps and Priority Mail.

The cynic would say that Donahoe’s preference for job-cutting and privatization over new revenue options like postal banking reflects poorly on President Barack Obama; after all, Donahoe's his postmaster general. That’s partially right and partially wrong. Though the postmaster was once a member of the presidential cabinet—the nation’s first was Benjamin Franklin—that changed in 1970, with a reorganization making the Postal Service a semi-autonomous agency. Instead, a Board of Governors, composed of nine members appointed by the president and confirmed by the Senate, chooses the postmaster general and chief deputy (who then become the other two members of the board). The postmaster serves at the pleasure of the board and could be replaced at any time. The Board of Governors operates like a board of directors of a private company, not only choosing the executive team but also approving compensation packages, directing expenditures, conducting long-range planning and setting “policies on all postal matters,” according to the USPS website. So postal banking rests in the board's hands.

Here’s where Obama deserves criticism: There are five vacancies on the nine-member board. He has not successfully placed a single appointee on it during his entire tenure in office. The four existing members were all appointed by George W. Bush.

Currently, the board consists of chairman Mickey Barnett, a former Republican state senator from New Mexico and onetime aide to Senator Pete Domenici; vice chair James Bilbray, an-ex Democratic congressman from Nevada; Louis Giuliano, former CEO of ITT Corporation and a senior advisor to the Carlyle Group; and Ellen Williams, a lobbyist and former chairwoman of the Republican Party of Kentucky. So the decision-making entity for the Postal Service remains in partisan Republican hands, five years into the Obama presidency. It’s not surprising, then, that they’ve used a relatively artificial retirement funding crisis to shrink the agency and privatize services.

Obama could fill the vacancies and restore a Democratic majority (by law, no more than five members of the board must come from one party, but with five vacancies to work with, he can certainly establish a majority).2 In addition, Barnett’s term has already expired, and Giuliano and Williams’s terms expire in December. So Obama could remake this board with members more favorable to a truly innovative agenda for the Postal Service that includes non-bank financial services. And since board members serve seven-year terms, they would be insulated from political shifts through the next presidential term.

The Board of Governors does not have unchecked power on postal policy. The Postal Regulatory Commission (PRC), also created in 1970, oversees the USPS, determining compliance with the law and making policy recommendations for the Board of Governors. So the PRC would have to determine whether the USPS could engage in postal banking through its existing authority. In 2008, the PRC upheld that money orders were a core postal service, and in a footnote mused that “stored value cards” (i.e. prepaid debit cards) could be classified in a similar manner. A favorable ruling from the PRC would be critical to postal banking.

The Obama Administration has often been criticized for failing to fill executive branch agencies with key appointments in a timely manner. It was understandable for the White House to slow-walk what may have been considered low-priority appointments when Senate Republicans routinely blocked every nominee. But since Senate Majority Leader Harry Reid triggered the nuclear option, nominees only need 50 votes for confirmation, lessening the possibility for obstruction and making the administration’s sluggishness far more frustrating.

In effect, you have a Republican majority controlling an executive agency under a Democratic president, which happens to be the country’s second-largest civilian employer, behind Walmart. The loss of over 125,000 postal jobs has had a detrimental effect on employment, and the resistance to ideas like postal banking prevents low-wage communities from an alternative to payday lenders, check-cashing stores and other unscrupulous operators. Yet the White House has shown no urgency in reversing the conservative governing ideology at the Postal Service. If nothing else, there’s an economic imperative for the White House to act. They claim to want to reduce inequality through executive action. Postal banking is a major opportunity to do so.

1

Bipartisan postal reform legislation passed the Senate Homeland Security and Governmental Affairs Committee last week. It both restructures the annual $5.5 billion retiree benefit payment, and repeals a 2006 provision that banned new “non-postal” products, giving more leeway for the USPS to explore postal banking.

2

The bill that cleared a Senate committee last week reduces presidential appointees on the Board of Governors from nine to eight, but even in that instance, Obama would still be able to fill enough vacancies to shift the balance of power.